» insights
satisfying Customers and Regulators: Five imperativesFocus on customer experience to increase compliance and relationship value
Regulators and consumers both want more from banks. While regulatory guidelines and
consumer rants in social media may use different language, they’re both aimed at the same
thing: improving customer experience.
There’s abundant evidence that falling short on customer experience is costly—from press
headlines about compliance penalties to rising numbers of consumers switching banks or
turning to alternative lenders. But there’s also growing evidence that focusing on improving
customer experience is rewarding. Banks that do it well benefit from an early warning system for
compliance risk exposure. And studies show that customer experience is also a powerful driver
of financial performance, including substantial gains in share of wallet, revenue and profitability.
This paper is about the new competitive ground in retail banking:
delivering impeccable treatment and outstanding customer experiences
to increasingly savvy and selective consumers. It’s based on FICO’s work
with banks moving to put customers at the center of their operations—
some undergoing massive organizational reinvention, some taking small
incremental steps.
We examine five imperatives—from the customer’s point of view—for
delivering a better customer experience:
1. “Treat me fairly”
2. “Understand me and show it”
3. “Make this fast, easy and secure”
4. “Don’t interrupt me unnecessarily”
5. “Assist and reward me”
The paper discusses the implications of these imperatives for originations, customer
management, collections and fraud management.
Number 75—February 2014
www.fico.com Make every decision countTM
Learn how a leading bank boosted customer profitability by 9%
www.fico.com page 2
Satisfying Customers and Regulators: Five Imperatives
» insights
The need to avoid financial and reputational damage from the consequences of noncompliance
is causing many banks to change how they operate. As global consulting firm KPMG points out,
“regulatory reform is perhaps the biggest driver of change” for European banks. In the Americas, “new
rules can lead to huge fines and successful compliance to great profit.” In Asia Pacific, increasingly,
bank “business models are being impacted by regulation.” 1
But regulatory pressure and the soaring costs of meeting it are not diverting the
savviest institutions from another operational transformation: becoming customer-
centric. Leading banks in markets around the world have put customer centricity at
the top of their agendas—some as the result of CEO mandates.
In fact, it’s becoming clear that these two efforts are complementary and most
effective when joined. Consulting firm PwC said in an August 2013 report that
banks need to expand the focus of their compliance efforts.2 “We see leading
banks shifting from a narrow, rules-based, technical focus to one that extends
to business acumen, improvement of the customer experience, and operational
understanding.” Without this more integrated approach, the PwC report concludes,
“many banks will continue to face high costs and losses in the form of escalating
litigation, penalties, and staffing needs.”
Case in point: Consider the misstep some US banks made in 2011 by trying to
charge fees for debit card transactions. In her article, “Why Customer Experience
Management Is the Antidote to Risk,” Patricia Sahm, of Carlisle & Gallagher
Consulting Group, says that if these banks had paid attention to data showing that
consumers abhorred such fees, they could have avoided the ensuing damage.3
“Within days, there were very public and loud outcries from consumers. In the end,
many banks retracted the fees, but at a significant reputational loss and regulatory
scrutiny.” Better customer experience management, says Sahm, “could have
prevented the introduction of risk to the system in the first place.”
Apart from the benefits for reducing compliance risk and costs, improving customer
experience is more important than ever for retaining and building valuable
relationships. Today, consumers can easily search for and compare banking products
and services from an expanding universe of possibilities. Habits and attitudes that
used to keep consumers with their banks year after year are falling away.
In fact, Ernst & Young’s 2012 Global Consumer Banking Survey found that the proportion of
customers planning to change banks had grown by 70% in just one year. The top reason, according
to the survey, was dissatisfaction with fees and charges; other reasons cited included more
personalized products and services, and better mobile and online technology.
» Two Winds Moving Banks in the Same Direction
1 Evolving Banking Regulation 2013, KPMG2 “Let’s Make a Difference: Managing Compliance and Operational Risk in the New Environment,”
PwC, August 20133 “Why Customer Management Experience Is the Antidote to Risk,” Patricia Sahm, n>genuity Journal, summer 2013
“For most of our clients, the current state of compliance has led to inconsistent application of compliance rules and a customer experience that is anything but seamless.”
Let’s Make a Difference: Managing Compliance and Operational
Risk in the New Environment, PwC, August 2013
“We expect firms to put their customers at the heart of their business…”
Martin Wheatley, Chief Executive, Financial Conduct Authority, UK,
speaking to The Guardian, October 2013
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Satisfying Customers and Regulators: Five Imperatives
» insights » insights
Also, as shown in Figure 1, more customers than ever had accounts
with multiple banks. According to the company’s 2013–14 Global
Banking Outlook, these trends are persisting.
Moreover, banks may not be realizing the full value of the customers
they retain. The 2013 Bain & Company Customer Loyalty in Retail
Banking report warns: “Most banks currently miss a significant
opportunity for cross-selling to their existing customer base.” This global
study of consumers found that while the percentage of current banking
customers purchasing a new banking product over the past year was
50% (developed countries) and 84% (developing countries), 35% of
these purchases globally were not with the customer’s primary bank.
Viewed by country, that figure, a low 19% in Denmark, rises to 54% in
Germany and a whopping 60% in the UK.4
How well a bank is likely to do in cross-selling, both currently and in the
future, can in part be predicted by customer loyalty, as measured by
the Net Promoter Score (NPS). The Bain study reports that customers
who are promoters of their primary bank buy more (14 % in developed
countries; 9% in developing) than detractors do.
Moving to more customer-centric operations can help banks improve customer loyalty. The Bain
report noted that the US bank with the highest product win rates (share of products bought by
customers at their primary bank) has been working to “consolidate customer data and build a unified
view across all locations and business units.” The US bank posting the biggest NPS gain in 2013 has
been making “a deliberate effort to become more customer-centered” and that the shift “has paid off
with gains in loyalty, new relationships and share of wallet.”
The power of customer engagement is further underscored by the
Gallup CE metric5, which captures emotional attachment as well as
rational commitment. The research and consulting firm, which has
applied the measure across a variety of industries and target audiences
(B2C and B2B), finds that it “has consistently demonstrated a powerful
link to key business outcomes.”
At a summary level, as shown in Figure 2, Gallup has found that
fully engaged customers (emotionally attached and rationally loyal)
“represent an average 23% premium in terms of share of wallet,
profitability, revenue, and relationship growth over the average
customer.” Actively disengaged customers (emotionally detached and
actively antagonistic) represent a “13% discount on the same measures.”
Clearly, the customer experiences a bank delivers can impact both
its success with consumers and its standing with regulators. How do
banks improve quality of experience? Here, from the customer’s point
of view, are five imperatives.
4 Customer Loyalty in Retail Banking: Global Edition 2013, Bain & Company, Inc.5 Customer Engagement as a Core Strategy: What’s Your Engagement Ratio? Gallup, 2009
87
99
107
123Fully Engaged
Engaged
Not Engaged
Actively Disengaged
Average = 100
Figure 2: The financial impact of customer engagementIndexed performance (share of wallet, profitability, revenue, relationship growth)
Source: Customer Engagement as a Core Strategy: What’s Your Engagement Ratio? Gallup, 2009
Figure 1: Percentage of retail customers with one vs. multiple banking relationships
3 or morebanks
2 banks
1 bank
2011 2012
21%
38%
41%
32%
37%
31%
Source: Global Consumer Banking Survey 2012, Ernst & Young
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Satisfying Customers and Regulators: Five Imperatives
» insights » insights
Statements and actions by regulatory agencies affect consumers. Most people are well aware of the
stiff fines recently meted out for bank misconduct and inconsistent or ill-managed processes. Their
banking choices may be shaped (especially for younger customers) by these reputational factors as
much as by their own experiences.
Conversely, what customers have to say about their banks affects regulators. Today, there are not
only more government channels for customers to lodge complaints, but more government scrutiny
of other forums where consumers air dissatisfaction. Speaking to Forbes, Dave Hoffman, PwC partner
and co-leader of the banking technology and operations group, said he expects the US Consumer
Financial Protection Bureau “will use social media to identify problems with financial services firms.”6
By making operations more customer-centric, banks can avoid becoming the target of complaints
and increased regulatory scrutiny over problems such as inconsistency. For instance, using
centralized decision engines, banks can apply business rules to ensure fair treatment and proper
conduct accessible across operational systems and processes. In addition, centralizing key functions,
like customer-level risk scoring and exposure decisions, can help banks act consistently.
For instance, a standardized exposure strategy ensures that two applicants in the same segment or
with a similar profile are not offered different rates purely because one has a lower elasticity to price
differences. Using the same process to make exposure decisions for existing customers and new
customers helps banks prove that all candidates for credit are being treated equitably.
Banks can also centralize the management of the analytic models used in making customer
decisions. Automated facilities reduce compliance and conduct risk by keeping track of model
versions, the decision processes where they are deployed, their ongoing performance and updates.
They also produce compliance and validation reporting along with accurate audit trails.
Intelligent communications services can help by documenting two-way interactions across multiple
channels. They prompt and orchestrate interactions to help ensure the bank is reaching out to
customers when and how it should: sending notifications to a customer’s current address, for
instance, or adjusting the interest rate being charged to existing customers to align with a lower rate
being offered on the same product to new customers.
6 “Feds Will Monitor Banking Customer Experience,” Forbes, August 2013
#1 “Treat me fairly”
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Satisfying Customers and Regulators: Five Imperatives
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FICO also recommends ongoing analysis of unstructured data from customer interactions. Today’s
speech analytics, for example, can instantly monitor 100% of collections phone conversations. As
shown in Figure 3, the analytics can prompt agents to make required disclosures, immediately
alert supervisors to use of inappropriate language or misleading statements, and automatically
flag and report on any areas of concern.
People want to do business with banks that understand
them and value their business. When they initiate a contact,
they expect the bank to know who they are and respond
with some knowledge of the context of what they are trying
to accomplish (open an account, refinance a mortgage, etc.).
When the bank contacts them, customers don’t appreciate
being subjected to conflicting or uncoordinated treatments
and offers.
Speech analytics, which can monitor every conversation with customers, enables supervisors to know if agents are making required disclosures, using proper language and abiding by other bank interaction policies. Viewing statistics and alerts on a constantly updated dashboard, supervisors have the visibility to coach agents or even to intervene during a call. The data from this process also provides an audit trail, and it can be used to identify new predictive variables for analytic models and segmentation.
Figure 3: Making sure every conversation is compliant
#2 “ Understand me
and show it”
“Service stands as the dominant cause of loyalty in most markets. To delight customers these days, the banking experience must be consistent and seamless in person, online, on mobile and on the phone, because customers increasingly hop among channels to complete a task.”
Customer Loyalty in Retail Banking: Global Edition 2013, Bain & Company, Inc.
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Satisfying Customers and Regulators: Five Imperatives
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To meet these expectations, as depicted in Figure 4, banks
need to see one customer (rather than unrelated accounts) and
act as one bank (rather than as uncoordinated channels and
product lines). What does this mean for bank operations?
To see one customer, banks must be able to combine more
data types and apply more analytics to them. Using additional
analytics to better understand customer behavior helps banks
improve and tailor customer experiences. It also helps them
comply with Know Your Customer laws and other anti-money-
laundering regulations.
To act as one bank, banks must be able to immediately
operationalize these analytic insights via decision engines. They
need to select the right channels and orchestrate interactions
across them with intelligent omnichannel communications.
Bank technology architectures for supporting these customer-
centric interactions vary. Established banks with legacies of
systems and processes siloed by product and channel have
different challenges and choices than new banks building
up “greenfield” operations. Figure 5, however, shows some
common elements. Most technology plans call for making
centralized resources—for analytics, decisions, customer
interaction management, etc.—available to existing
operational systems.
87
Figure 4: Building “one customer-one bank” relationships
Act as one bank to Jane
See Jane as one customer
Decision engines and intelligent communicationsorchestrate the right actions at the right time through Jane’s preferred channels.
Capture operational data for further analysis to understand Jane better.
More data sources and types of analyticspull insights from Jane’s activity across all accounts and channels.
Action-effect modeling and strategy optimization make the right decisions for meeting Jane’s needs and the bank’s portfolio and enterprise objectives.
ACT
LEARN
Figure 5: Simplified diagram of an infrastructure for customer-centric decisions
Summarizes and updates Jane’s transactional characteristics
Determines the best way and time to contact Jane for a particular purpose
Makes data-driven decisions about Jane, like setting her customer exposure
DATA
DATA
DATADATA
DATA
EXISTING HOST SYSTEMS
DAT
A LA
YERS
PROFILING ENGINEINTERACTION
MANAGER CHANNELS
OUTPU
TS
ODS
WORKFLOW MANAGEMENT/
TOOLS
MODELMANAGEMENT
REPORTINGENGINE
ANALYTICDATABASE
DECISION ENGINE
ANALYTICENGINE
LINK/MATCHINGANALYSIS
OUTCOMES
OUTCOMES
Profiles Models
Rules Models
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Satisfying Customers and Regulators: Five Imperatives
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For banks not yet ready to make such a complete
transformation, FICO is helping them take incremental steps.
At a basic level, banks can add a customer ID to account-
level records in order to identify and link activity by the same
individual. With this ID in place, they can begin to inject into
their account-level scores and decision strategies characteristic
variables from customer activity on other accounts. For
example, characteristics from a credit card account—number
of times delinquent, payment/balance ratio, utilization, etc.—
could provide a loan decision with more insight into the
customer’s borrowing and payment behavior.
Gradually, banks can work toward summarizing activity from
multiple product lines into customer-level characteristics. FICO
helped a large Asia Pacific bank, for example, make customer-
level data and risk grades as key inputs into account-level
decisions. This approach was first implemented in a credit card
line increase strategy, mathematically optimized to balance
offer response and profitable utilization. The result was an ROI
of more than 700% within the first year after implementation.
The next implementation was in an authorization strategy.
It’s projected to deliver 1200% ROI in the first year, through
an annualized revenue increase of $2.18 million with no
significant uptick in delinquency.
Another incremental move is to raise one decision strategy
to the customer level, as depicted in Figure 6. Risk exposure
is a good candidate, as it affects both originations and
customer management. Apply the same criteria for estimating
the customer’s capacity to borrow (rather than the bank’s
exposure to the customer) across all products—while allowing
some flexibility for product-level adjustments. This type of
comprehensive approach enabled one FICO client to increase
profit on new pre-approved accounts by 9% and another to
reduce credit loss rate by as much as 50%. (See “Strong payoff”
sidebar for more details.)
Using a centralized decision engine, banks can efficiently make
customer exposure available as service to multiple operational
systems. The service is dynamic, recalculating exposure
instantly on events—missed payments, balance pay-down,
account closures—with all subscriber systems having access
to the update. Authorized business users should be able to
control the policy rules and analytic models that determine
the impact of exposure changes on other potential decisions,
such as additional product originations, deposit holds,
authorizations and credit limit extensions.
Figure 6: Centralizing customer exposure decisions
Event-triggered recalculation
Current account/DDA
Unsecuredcredit line
Credit card #2
MortgageCredit card #1
Dynamic allocations of available exposure
Decision engine performs centralized
exposure service Customer-level and
account-level models, business rules and
optimized strategies
Strong payoff from customer-level decisions
A South American bank used customer-level analytic segmentation to
set pre-approved limits (cash, revolving, installments). Results:
� +9% profit � –18% attrition � –60% probability of default across all products
A North American bank used customer-level analytic segmentation to
set pre-approved limits for its unsecured personal lines. Results:
� –40–50% credit loss rates compared to account-level segmentation � +30% revolving account approvals � +14% credit line approvals
www.fico.com page 8
Satisfying Customers and Regulators: Five Imperatives
» insights
Consumers don’t have much time to spend on banking, Moreover, their service expectations are
being set by other online and mobile experiences, such as shopping on Amazon and getting
driving directions from Google. Banks need to meet consumer expectations for fast, easy and secure
banking, whether an interaction is taking place electronically or at a branch. Banks also must ensure
that how they interact with customers across all channels, as well as store information from these
interactions, complies with security regulations, such as the Federal Trade Commission’s Safeguards
Rule in the US.
Customer-centric operations increase speed and ease by making data and other necessary decision
inputs available to business processes, which can occur through any channel or mix of channels. In
originations, for instance, existing customers applying for additional credit shouldn’t have to fill in
data available from internal systems. A good first step to move toward customer centricity, therefore,
is to determine what information is needed to make an origination decision and where it might
already exist. This visibility is also essential for ensuring that consistent security controls are in place
to protect customer information.
Banks also benefit from adding additional data sources and analytics. In customer-centric
originations, for example, the aim is to eliminate the traditional trade-off between process speed
and accuracy by increasing the concentration of analytic insights brought to bear on rapid and even
real-time decisions.
In this way, banks can provide an application approval process that seems almost instantaneous,
but which nevertheless accommodates a very precise underwriting decision to minimize credit risk
while detecting fraud risk. Application fraud models enabled one banking client to improve fraud
detection at originations by 92%, reducing post-book fraud by 62%. Analytics aimed specifically at
detecting first-party fraud enabled another bank to achieve a 70% reduction in losses.
In the span of the same quick process, banks can also make sophisticated pricing and initial credit
line decisions. Employing mathematically optimized strategies that balance credit risk with customer
retention and profit potential—and bank capital management objectives—they can set the stage
for a successful, mutually beneficial relationship. A European banking client used this approach to
increase profit by 46% on loans to applicants with no previous relationship with the bank.
#3 “ Make this fast,
easy and secure”
www.fico.com page 9
Satisfying Customers and Regulators: Five Imperatives
» insights
When an instant decision isn’t possible, applicants
shouldn’t be left hanging. Making them wait—without
providing status updates—opens the door to competing
lenders. As shown in Figure 7, banks can employ intelligent
communications management to stay in touch via the
applicant’s channel of choice. They can request additional
information, help applicants submit it and inform them of
next steps.
Automated communications can be leveraged to improve
regulatory compliance. An email or SMS exchange, for
example, can confirm and document that the customer
understands the amount and key terms of a loan or credit
limit extension, and has explicitly accepted them.
For a European banking client, 78% of customers receiving
such automated communications said it improved the
overall level of service they were experiencing. The bank
also saw a 23% rise in ticket value per debit card spend.
Figure 7: Keeping customers engaged when instant decisions aren’t possible
Thank you!We value your business. We’ll let you know about your loan today.
There’s just one more piece of info we need.
Your loan is almost ready. We’ll be in touch before noon.
Congratulations! Your loan is approved. Please check your email inbox for the documents. Meanwhile, here’s a handy mobile app you can use to make and track payments.
Jane applies for loan on website
8:10 am
ReceivesSMS
9:30 am
Calls backwith info
ReceivesSMS
10:00 am
ReceivesSMS & email
11:30 am
$
While relevant contacts from banks improve the customer experience, contacts that lack purpose
and coherence, or occur too frequently, are counterproductive. They add friction to a relationship
that should be flowing smoothly toward ever-greater mutual value.
FICO research on thousands of smartphone users around the world underscores both the
opportunity and the peril for banks reaching out to customers via mobile channels: 53% of
respondents said they liked being contacted with relevant information; 71% disliked irrelevant
contacts.
In customer management, therefore, customer-centric banks are using more analytics to pinpoint
the right offers as well as timing for other relationship-building contacts. They’re coordinating these
communications across product lines (which we’ll examine further in imperative #5 next).
#4 “ Don’t interrupt me
unnecessarily”
www.fico.com page 10
Satisfying Customers and Regulators: Five Imperatives
» insights
In collections, additional analytics, such as collection scores, help banks reduce friction by knowing
which early-stage delinquent accounts are likely to self-cure. They can just monitor these accounts
or send a gentle reminder via the customer’s preferred channel, at the preferred time of day,
providing easy self-service options for making payments or promises to pay (see Figures 8 & 9).
One bank reported that 61% of its customers surveyed said they preferred an automated contact
(voice, email or SMS) over dealing with collection agents. Additionally, companies using this
approach generally achieve impressive efficiencies, such as a 42% increase in right-party contacts
and a 30% increase in payments made during the call.
Even in late-stage delinquencies, advanced analytics can help banks respond in a more flexible
way to still-valuable customers who may be experiencing a difficult financial patch. FICO helped
a European bank use decision modeling and optimization to offer more tailored and flexible loan
adjustments, while maintaining profitability. Take-up rates climbed from 27% to 47%, and 6-month
default rates dropped from 35% to under 10%.
Such measures are good initial steps toward the customer-level collections operations for which
many banks are aiming. Advantages include efficiencies and cost savings as well as reduced friction
for customers, who receive only one contact even if multiple accounts are delinquent. Banks can
also adjust treatment strength and timing based on customer-level predictions of risk across all
accounts balanced with the overall value of the relationship.
Interactive SMS—Average Response Rates
0%
30%
40%
50%
60%
70%
20%
10%
In hours After hours
Interactive Speed of Response
120%
100%
80%
60%
40%
20%
0% < 1 min
< 5 min
< 10 min
< 15 min
< 30 min
< 1 hour
< 2 hours
< 6 hours
< 8 hours
< 12 hours
< 24 hours
FICO worked with a large European credit card company to explore
the response to SMS contacts after work hours. We found that
customer response rates for simple, self-service transactions were
even higher (66%) in the evening than during the day (50%). Speed
of response also improved.
Figure 8: Providing customers with quick, easy self-service ways to resolve account delinquencies
Figure 9: Exploring after-hours, self-service contact
www.fico.com page 11
Satisfying Customers and Regulators: Five Imperatives
» insights
Fraud management is another decision area with potential to cause discord in customer
relationships. While customers appreciate being alerted to fraud incidents, having a legitimate
transaction blocked or referred can be a major source of embarrassment and annoyance. And even
if they don’t take place in public at the point of sale, too many fraud alerts can leave customers
wondering if the bank even knows who they are.
As banks move toward more customer-centric fraud management, there’s much they can do to
reduce relationship friction. One way is with additional analytics. Behavior Sorted Lists, for instance,
learn the habitual behavior patterns of customers, continuously updating with each transaction so that
the patterns evolve over time. Adaptive models learn from the changing behavior of fraudsters and
legitimate customers in the current production environment. Both of these FICO innovations improve
the ability of fraud systems to detect risky activity, thereby substantially reducing false positives
(legitimate transactions blocked or reviewed as suspicious) and improving customer experience.
Another way to reduce friction in fraud management is with intelligent mobile communications and
automated self-service resolution. These technologies improve fraud protection, while minimizing
delays, inconvenience and embarrassment for legitimate customers at the point of sale.
For example, when a fraud model scores a transaction as suspicious, depending on the level of risk
involved, the bank may block or allow a questionable transaction. Either way, an automated agent
immediately contacts the customer (SMS, email, voice) for verification. If the transaction is legitimate,
the customer simply taps a button to auto-resolve. Subsequent transactions can then go through
without a hitch. If fraud is occurring, the call can be passed to a human agent to resolve the situation
for the customer and implement protections against further fraud.
Automated alerts like these are appreciated by most customers. One bank reports that 95% of
its cardholders surveyed were satisfied with the service, and 94% would recommend it to family
and friends.
Such alerts are also the fastest, most efficient way to handle fraud cases. In 2013, on “Black Friday”
(in the US, the intense, bargain-inundated first day of the holiday shopping season), one FICO client
generated more than 950,000 alerts. Roughly half were auto-resolved, doing the work of more than
500 agents.
Clearly in today’s markets, customer loyalty can’t be
captured by a single low rate or special offer. Rather,
customer trust, repeat business and advocacy arise
from goodwill banks amass over time. Banks earn it
by delivering one excellent customer experience after
another, while helping customers achieve financial goals
and navigate financial challenges. They secure it by
rewarding customer loyalty as the relationship endures
and expands.
In customer-centric banking, therefore, a successful
customer relationship is best viewed as a journey through
stages of increasing mutual value. Today’s most successful
banks are purposefully planning this journey.
#5 “ Assist me and reward me”
www.fico.com page 12
Satisfying Customers and Regulators: Five Imperatives
» insights
As shown at the top of Figure 10, the journey begins with pre-qualification or origination of a new
customer’s first account. By incorporating customer-level data, predictions (e.g., attrition, lifetime
profit potential) and decisions (e.g., exposure) into this account-level decision, banks lay the
foundation for subsequent steps.
Throughout the relationship, those working in customer management have access to all these
originations inputs and outputs. If exposure has been set at the customer level, it’s automatically
recalculated upon events such as missed payments. Such actions ensure regulatory compliance and
clearly demonstrate fairness to both new and existing customers.
At the same time, by fully capturing and analyzing data from customer interactions, they can make
highly refined decisions about how to best allocate available customer exposure. They can use
these advanced analytics with a centralized decision engine to identify the best next action—given
portfolio and strategic capital management objectives—for building value in the relationship journey:
• What additional service would be most helpful to this customer at this time?
• How can we package this service to best meet this customer’s needs/preferences?
• Can we offer pricing and added value features that reward the customer for taking this next step
with us?
Once the best next action has been identified, a centralized customer interaction management
engine should be used to orchestrate execution of the action across channels.
As depicted at the bottom of Figure 10, the foundation for a relationship plan is customer-level
segmentation. The primary purpose of this kind of segmentation is to organize customers for
purposes of identifying and understanding ways to increase their value to the business.
Figure 10: Customer-level segmentation and planning
Planned customer relationship journey toward increasing mutual value
OPENDDA
ACHDEPOSIT
ONLINEBANKING
MOBILEAPP
ACHWITHDRAWAL
STUDENTLOAN
MORTGAGE
WELCOMECONTRACT &
SURVEY
PERSONALALERTS
SAVINGSACCOUNT
AUTOLOAN
PAYMENTPLAN
PREDELINQUENCYTREATMENT
Reward customer with exclusive or discounted features
Reward customer with free additionalservices
Agility to respond tounplanned challengesand opportunities
RELA
TIO
NSH
IP P
LAN
NIN
GSE
GM
ENTA
TIO
N
Purposeful decision makingapply additional analytics and optimized strategies to identify how to best provide personalized service and build relationship value
Value-based innovationorganize customers based on potential for increasing their value to the business
Customer-level core segmentationdifferentiate based on demographics, transactional analytics and behavioral risk/reward predictions
Younger customerswho want low cost, high rates, fast service
Good-credit customerswho have just switched banks
Older customers who want ease and assistance
Affluent customerswho want convenientpremium services
! !
í
Satisfying Customers and Regulators: Five Imperatives
» insights
The Insights white paper series
provides briefings on research
findings and product development
directions from FICO. To subscribe,
go to www.fico.com/insights.
FICO and “Make every decision count” are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. © 2014 Fair Isaac Corporation. All rights reserved.3074WP 2/14 PDF
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Banks are increasing segmentation precision by combining demographic data with analysis of
transactional data. The aim is to better understand the context of customer behavior and be
able to separate customers by characteristics such as product mix and channel usage. Moreover,
transactional analytics can help banks demonstrate to regulators that different treatments of
customers are justified by different behavioral characteristics.
Empirically derived segments can be used in customer-level predictive models and strategies. They
can also be applied as decision keys in account-level strategies. At a minimum, they can be used to
exclude some accounts from treatment eligibility.
Ultimately, banks are working toward creating dynamic customer-level profiles, which comprise
many customer-level characteristics as well as summaries of account-level and channel activity.
Profiles may be applied across decisions areas (originations, fraud management, etc.) and used for
segmentation, modeling and decision strategies. Maintained by a centralized analytic engine, they
should be accessible by multiple operational systems, and also dynamically updated by transactions
and other operational events originating from these systems. Companies should use judgment
around the use of customer profiles, to ensure they are providing welcome customer value and not
unwelcome intrusion on privacy.
Regulators and consumers expect a lot from banks these days. The challenge of meeting both sets
of expectations, as well as bank financial goals, can seem daunting.
Yet mounting evidence shows that by focusing on improving customer experience, banks can
satisfy both regulators and consumers. By paying more attention to how they treat customers,
banks avoid the financial and reputational costs of noncompliance. At the same time, they gain the
insights to engage and satisfy customers in ways that drive financial performance.
To learn more about building compliant, customer-centric strategies, visit the Banking Analytics Blog
and read these Insights white papers:
• Is It Fraud? Or New Behavior? (No 69)
• Building “Ability to Pay”-Compliant Growth Strategies (No 68)
• When Is Big Data the Way to Customer Centricity? (No 67)
• Five Imperatives in a Shifting Collections Landscape (No 66)
» Conclusion